Creative destruction

“People,” the lawyer said, “wouldn’t be looking for the return of their deposits if the units were worth more than or as much as they purchased them for.”

Remember those words. You’ll hear them again.

This is what happens when (take your pick), (a) the economy starts fading, (b) real estate prices slide or, (c) people realize they were horny idiots. The words will be repeated in most cities, and apply to many buildings and housing developments where buyers understand what looked sexy a year ago is now just butt ugly. Worse, dangerous.

The latest glam project to falter is Vancouver’s uber-condo, the Residences at Hotel Georgia. This 48-story excess sprouting from the carcass of an art deco downtown fixture was all the rage in 2010 when everyone believed in the Power of HAM and thought it was different there. Units sold for nosebleed prices of $1,400 a square foot, with the developer promising closings in December of 2011.

The damn thing’s still not finished, and meanwhile Van real estate is crashing back to earth. So an error on the part of the developer – inadequate notice of the delayed closing date – has given regretful buyers a chance to wiggle out of their deals. At least six of them have taken legal action to recover their deposits (typically around $400,000 on deals averaging $2 million), and walk.

This could spell financial disaster for a landmark project. Already 60 of the 156 units remain unsold, years after sales began. If these six deals fall apart, more will likely follow, leaving a signature building half dark.

The timing, of course, sucks. But it always does. Real estate is all about confidence, and this week it’s in shorter supply. For the first time since 2010, the economy’s actually shrinking. GDP growth is negative, thanks in large part to housing – which shows you how a virtuous circle (more borrowing, more buying, more jobs) can flip into a vicious one (more debt, more fear, more jobless).

Manufacturing is slumping, not exactly news given lousy global demand. But the hard brake on the property market has sure grabbed economists’ attention. Weak housing demand, says TD Economics, is now constraining national growth. Construction is fading. Mortgage brokers are drying up and blowing away. Real estate company revenues have crumbled for the fourth month running.

Nobody reading this pathetic blog for the past couple of years should be surprised. The only shock is that the reasonable, sentient, educated people around you could have been such lusty dorks, actually believing (as they still do in Calgary) that real estate can ascend endlessly on the back of debt, cheap money and hype. But to be fair, the ‘it’s different here’ meme was repeated endlessly by mainstream economists plus the robotic temptresses hired to read the news on Global. How could you fight off the hormones and endorphin?

Anyway, it’s over. The next phase is creative destruction – now happening across from the art gallery in downtown Vancouver as the Hotel Georgia tower wobbles, and among the forest of condo spires in godless Toronto. As this blog has said so often it’s beyond boring, there’s no question how this will end.

Last week, for example, I reminded you of the role that shriveled, omnivorous Boomers will be playing in this destructive process. As a group they have most of their net worth in houses, few pensions, fewer liquid assets and will be the first generation of retirees with widespread mortgage debt. Hippie dust to hippie ashes. Freedom’s just another word for nothing left to lose.

As much as I hate it when banks agree with me, another one just did. BMO’s new report claims a third of the country’s nine million wrinklies will have to sell off their houses to stay in Depends. “Boomers could be in serious financial trouble if they are relying in their home,” it adds. “The rally in house prices has given people the false sense of security that investing in a house is safe and an option to fund their retirement.”

False indeed. The bank reminds us that “tighter lending standards and higher interest rates could reduce the number of eligible homebuyers and push people into smaller and less expensive homes.” So, just imagine all those suburban streets full of Boomer particle board McMansions, with their energy-sucking pools and property tax bills to match.

Hard to see how this isn’t shaping up as the perfect storm. Slow growth. Credit crunch. Debt. Demographics. Fear. No wonder rich people with fancy lawyers are wriggling out of luxury deals they see tanking. Wouldn’t you?

A fee increase for business owners who allow payments by Visa has small business owners across the country concerned.
The Visa fee increase will personally cost her more than $800 this year, says B. J. Sandiford. (CBC)
Fees for small businesses are going up from about three per cent for every transaction to between four and six per cent.
…
Visa is calling it “a modest pricing adjustment” and notes it is the first time its fees have changed in five years. Dan Kelly, president of the Canadian Federation of Independent Business, takes issue with Visa’s description of the increase.

“One-third increase in the slice that they get, so that’s by no means modest,” said Kelly

I’m wondering about TELUS Garden? they sold out instantly, well not really, but so they say. Those people who bought are already underwater…. when the next couple of payments are due, it could get interesting? and by the time of closing, it could easily be 25% down… the Speckers are going to get hurt on this one.

I have been watching this building for more than year now. The restaurant in the Hotel is terrific as is the open air patio on the 4th floor. However the Residences have been dark for a long time without any construction activity. I was sure there was a problem. Now we know.

One should worry when a slowdown in an obviously bloated housing market is enough to ‘constrain growth’. Apart from a few resource extraction industries, Canadians seem to spend their time trading overpriced houses.

Smoking man what is your drink of choice I am thinking I need to send you a bottle for the posts.

Our CEO , Fortune 500 company that is doing well just went on a rampage about the financial problems in the USA. Despite our record earnings I have been told I need to lay off another 10 percent before the end of the year to help make numbers. China is slowing and it is affecting a lot of businesses right now…

Nice one G,
The sad truth is the coming depression will be much worse than the 30s. This time, money is backed by notta, manufacturing has been gutted and government and public sector leeches are hungrier and more numerous than ever.

Anyone who has anything that resembles wealth better also own a few guns and know how to shoot.

It’s interesting that Garth talks extensively about inflated real estate pricing but never seems to talk about proper market pricing.

Isn’t it kind of talking out both sides of your mouth to say the current global currency war (competitive devaluations) that are running up equity pricing/real estate pricing will only negatively impact real estate, and not already overinflated market valuations (AMZN’s 285 p/e ratios? LOL??)?

After all, isn’t it the case that if equity markets continue to climb, people will definitely continue to buy McMansions?

Beating up on Real Estate Agents is funny though…If that’s what you are trying to accomplish.

My plebes out west tell me that Air Canada will be increasing the direct flights from Shanghai to Vancouver in order to soak up all the lingering listings – I expect the georgia to be sold out at new record prices by the end of November.

Interesting that you rightly included the cost of property taxes for the McMansions. Was talking to a friend who happens to work for BC Assessment. Applications for the reverse robin hood farm class applications are the highest ever. BC it seems has the most generous farm class program in Canada available for property owners. Sell $ 2500 in farm goods supported with fake receipts and your condo neighbours will pay the property taxes for your 5 acre estate horse farm. The poor helping out the rich. got to love it. Only in BC!

As an American citizen I have been reading Garth’s blog mainly for the entertainment value. Excellent language skills, Garth. God, your blog makes me laugh so hard every evening!!! At the same time I just cannot believe how the house horny Canadians have been blowing their hard earned money away. Experience from the south of the border taught them nothing. One thing that Garth does not mention is a very high probability of the worldwide recession, in my opinion, within the next two or three years. I can imagine what that will do to the Canadian real estate, but I am very positive it will be a massacre of enormous proportions.

In fact, in most Asian cities, its at least 300 per square foot near the city centre. The apartment I rented in KL was $350 per square foot, and its not even as nice as my place here in Canada. This was in 2nd world country.

Singapore, Japan, 1st tier Chinese cities are all relatively more expensive than T.O/Vancouver.

Comparing Canada’s RE market to the US RE market is useless. For a variety of reasons, real estate in Canada is more closely tied to the rapidly growing Asian markets (+Australia)… These markets all exhibit boom/thaw patterns. Look at the Australian trends for evidence – boom -> flat-line -> boom -> flat-line. Same trend elsewhere in Asia.

Just watch and see, in about 12 months, buyer confidence will start returning here in Canada, especially with Obama and Uncle Benny at the Fed flooding the world with fiat.

A purchaser of a unit at the Private Residences at Hotel Georgia, is asking a court to declare that he and other purchasers are entitled to their deposits back as the units aren’t ready as promised.

C.H. Lee said he agreed to buy one of the units in 2007 and put down a deposit of $312,250 (25 per cent of the purchase price) on an apartment that was sup-posed to be ready December 2011.

Last month, Lee received a letter saying that date had to been moved to late 2012.

While developers are allowed to take longer than originally forecast, they have an obligation to let purchasers know and that information must be provided in a certain way, Lee’s lawyer Bryan Baynham of Harper Grey LLP, said.

Under development law (as set out in the Real Estate Development Marketing Act or REDMA), developers must provide a disclosure statement setting out material facts about a project and if those facts change, an amended disclosure statement must be provided.

In this case, the developer, Georgia Properties Partnership, advised Lee his unit would not be ready but did not amend the disclosure statement, said Baynham, who is seeking to have the lawsuit certified as a class action. And that’s enough to enable Lee and other purchasers to get out of their con-tracts, he said.

“It’s that simple,” Baynham said.

“The development industry has great power and it can do all sorts of things,” Baynham said. “They just have to tell people and they have to tell them in a formal prescribed way.”

None of the allegations in the case have been proven in court.

Baynham said Lee and other purchasers aren’t necessarily going to back out of their deals. They just want to know if they have that option.

The Lee case is just the most recent in a string of cases where developers have been taken to task for not following the rules.

In a decision handed down Wednesday, the B.C. Supreme Court held that four purchasers in a development in Port Moody were entitled to rescind their agreement to purchase and get their money back, despite the fact they had been living in the apartments since February 2009. In that case the developer, Onni Development, prepared an amended disclosure statement – which advised purchasers that sub-division approval had been granted, that construction had commenced and the estimated date of completion remained the same – but failed to pro-vide a copy to the purchasers.

So we no longer have 0% mortgage effectively? I keep getting emails that a guy is still offering 0 downs. Are they doing downpayment as personal loan or something?
No, guys is not in Nigeria but Toronto and apparently selling mortgages for a while.

The GDP for the same month was also negative down in America but with the election right around the corner the American public was lead down the garden path. Expect the revised version after the election to be sharply negative.

Remember the RE industry screaming the worst was over the bottom was in, now is the time to buy?.

Even the RE price index supplier couldn’t hedonic adjust price data to show a rise.

House price recovery stalls in October

Home prices fell in October after four months of gains, dashing hopes of a quick housing market recovery aided by lower interest rates.

Capital city homes prices fell 1 per cent in October, following a 1.4 per cent increase in September, according to the RP Data Rismark, after the Reserve Bank cut interest rates through 2012. Home prices fell 0.9 per cent in Sydney and 1.1 per cent in Brisbane, RP Data said.

“DEAD as the dodo”‘ is how the Queensland market was described today, as national concern over housing price stability helped slash a massive 25 per cent off trading earnings before tax of building fixtures and fittings firm GWA.

“I don’t think you have to be a Rhodes scholar to understand what’s wrong and it’s weak house prices. People are very reluctant to do up their house if they think they’re going to over-capitalise it. People are pretty reluctant to buy… Most people are holding back and looking to see if house prices will stabilise, and I’m not talking about beach houses on the Gold Coast, I’m talking about normal houses.”

I was surprised to accidentally across info on Garth tonight about his job as a financial advisor. Maybe this is why he suggests mutual funds along with other ETF’s etc. when offering investing advice? There is even a picture of his talks on the website. Nice tie-in.

Gee, Marie, you’re a great sleuth. The following information has been sitting on this site for three years: “Garth Turner is an Investment Advisor and principal with Turner Tomenson Wealth Management Group at Raymond James Ltd.. The opinions expressed on this site are his alone. Content on this site is presented as personal commentary on current economic, real estate and financial conditions and does not in any way constitute commercial solicitation or investment advice. Readers are encouraged to independently seek their own investment advice and financial counsel.” By the way. I do not collect commissions or sell products, and certainly not mutual funds. You’re also free to ignore me. — Garth

Pretty sure the topic has been covered here before. But I will summarise.

Real estate should be priced at a multiple of about 3 times household incomes:

“The house-price-to-income multiple is a simplified, yet internationally recognised measure of housing affordability. It is covered in Agenda 21, Chapter 7 of the United Nations Framework and it is defined as the ratio between median house price and median annual household income, otherwise known as the median multiple. The World Bank also says this ratio is “possibly the most important summary measure of housing market performance, indicating not only the degree to which housing is affordable by the population, but also the presence of market distortions”. Based on this official work, it seems to have become accepted that a median multiple of 3.0 times or less is a very good marker for housing affordability.”

Another way to get to “proper” real estate value is to compare it to the cost of renting a similar unit.

“So what is residential real estate worth today? The answer to that question is, “About 15 times the annual rent”. RE professionals are going to write me and say that this simple calculation is wrong. They will say that the number is lower. Possibly as low as 12 times rent…”

So, if house prices are more than 3 times household incomes in the area and more than 12-15 times the price to rent similar units, the price is too high and should come down until (a) household earning rise and/or (b) rents increase.

Interesting to note in the seekingalpha article I posted above: the article is now over 3 years old and the was some speculation re were prices finished falling or did they have more room to fall, with some posters arguing that based on rents prices were still too high. As we all know, prices in the US did indeed continue to fall for another 3 years. And there has been empirical studies showing that when real estate bubbles pop prices tend to fall for 5 – 6 years, so that is about right for the US (approx 2006 – 2012). So if Canadian prices started to correct in 2011, then you should expect prices to bottom out around 2017.

” Isn’t it kind of talking out both sides of your mouth to say the current global currency war (competitive devaluations) that are running up equity pricing/real estate pricing will only negatively impact real estate, and not already overinflated market valuations (AMZN’s 285 p/e ratios? LOL??)? ”

——-

Yes yes and yes, and exactly where I disagree with Garth and where things are going. BUT, it takes two sides to make a market and everything “civil” seems to be published on this board without censorship, so we simply let time dictate where things eventually do wind up. I trade markets for a living and am confident in my opinions, but I will always remember the taste of humble crow-pie.

I’ve blogged a million times but what the hell one more time, LIQUID is the way to be.

“As much as I hate it when banks agree with me, another one just did.”
——-

Fundamentally, there has never been any disagreement between what you say and what the banks say. The actual problem is not going to be addressed, that’s clear now. So the situation and the opportunity that it represents remains.

The “financial” entanglement Canada finds itself in is of course reflective of its society. They are one and the same. People have forgotten about themsleves and whaf they need, their community, and don’t have an interest
( yet) in looking at what happened ( is happening).

How much you “disagree” with the banks is on record and is evident once the matter of liquidity appears. Where did this “value” come from? Where does this “value” go? Back into a “long-term and ever-solvent” banking system. Utter denial.

With what is going on globally, and the truth about the global credit bubble ( real estate bubbled all over the world at pretty much the same time), the real issue is about addressing how we got here, what the risks are and why “liquidity” is hardly touching the fundamentals.

The strange thing is that there’s not much debate possible here. The only way “debate” remains open is by refusing to look at reality. People know what it is. They know when they refuse to look or ask.

So consider for a moment the people blindly and unquestioningly following international banking as their master ( which includes those out of debt and liquid…and back in the casino).

Who are we here?

An isolated, compulsive society, steeped in hard denial. Canada is a poster child for this. The community is broken and lost…and even here, a call to look at this reality is often arrogantly dismissed.

This is a longer video from Gabor Mate, the Vancouver doctor who works in the hard edged East side, helping addicts. He too thinks it’s about society.

Looking at the real estate insanity ( and it’s big time crazy) that is ocurring everywhere as cartels have sold cheap “money” everywhere…reveals what’s going on with people….fearfully borrowing, consuming or casino playing.

What exactly are the personal fundamentals of the crisis? Talking about liquidity and avoiding looking at our lives under an out of control international banking system remains absurd.

So what about the people? Who are they? Who are they when not believing and acting as if banking and their ponzi scheme is life?

I think those wrinkly boomers still have choices even if they are unable to sell their homes for what they consider to be a decent price.

They can take out one of those reverse mortgages in order to squeeze liquidity out of their properties. Sure this means that their descendants will get nothing but between housing and caring for mom and dad in their old age and having no inheritance, some might prefer no. 2

They can delay their retirement and many have already done this after the fallout from 2008. This means bad news for younger people trying to get into the workforce, of course, but with OAS and perhaps pensions only beginning at age 67, this is inevitable for many.

They can rent out a part of their property in order to help with the mortgage / property tax payments .. depending on how their property is set up.

Many children of these wrinkly boomers are moving back home so perhaps these adult “children” will have to start paying some of their way and helping with the bills. It is not uncommon these days to see a forty something year old still living with their parents.

Of course there is always the option of selling the property for what it is actually worth in the market today. Depending on how much equity an owner has invested, they may or may not have enough to get into a smaller property .. or at least put a downpayment on one and eventually leave this world with a mortgage outstanding (way to put it to the man ! … can a bank say you cannot have a 20 year mortgage because you are too old ?).

Anyway, all this to say that those wrinkly boomers will still have options in order to acquire liquidity. I certainly do not think their retirements will be super comfortable but they will manage, I am sure.

As for those poor contractors in BC … ha ha ! Perhaps for once we will have a contractor who actually finishes the job on time .. that’ll teach ‘em.

Smoking Man’s blog has to be the biggest turd I’ve seen since using a bathroom in a service station near Coburg on the way back from Ottawa. And they have that Big Apple store nearby. It’s like some mental deficient man-child discovered Cut N Paste.

People do enjoy a good blood and guts show don’t they? Be it the tearing of limb from limb in a gladiatorial spectacle at the Colosseum almost two thousand years ago to the eager anticipation of the prospect for the decimation of some homeowners equitable wealth and life savings today; there seems always to be a contingent who impatiently long to delight in watching another suffer somehow.

On Sept. 6, 2012, in the case of Sylvie Giguère (tcc-cci.gc.ca), Ms. Giguère and her spouse lost a court battle on this issue. The couple had sold seven single-family residences within a six-year period, claiming the PRE on each sale.

In this case, they had owned the properties for periods ranging from just over three months to just under two years. CRA successfully argued that the profits should be taxed as business income and that, in addition, gross negligence penalties should apply for failure to report the income.

In this case, the court concluded that the intention of the taxpayers was to buy the properties and sell them for a profit, not to live in each property as a principal residence. This intention, along with the frequency of their “flips” led the court to the conclusion that, for this taxpayer, the real estate sales were an “adventure in the nature of trade.”

#71};-) aka D.A. on 11.01.12 at 8:22 am
People do enjoy a good blood and guts show don’t they? Be it the tearing of limb from limb in a gladiatorial spectacle at the Colosseum almost two thousand years ago to the eager anticipation of the prospect for the decimation of some homeowners equitable wealth and life savings today; there seems always to be a contingent who impatiently long to delight in watching another suffer somehow.

Sick bastards…

Kinda entices one to do unto them that which they’d have done unto another…. Nahhhhhh I’m just not that kind of REALTOR®. Although… could it be a profitable vigilante venture? Nahhhhh again, for they have nothing to take in return for teaching them that lesson.

You said, “Fundamentally, there has never been any disagreement between what you say and what the banks say.”

This is not true. Garth has been preaching that the housing market is going to have trouble since at least 2008 and the banks have been saying the opposite. In general, the banks have been cozy with the Re business and pumped housing. However now they are shifting more towards Garth’s view.

You said, “The “financial” entanglement Canada finds itself in is of course reflective of its society. They are one and the same.”

It is not clear to me what you mean by this or most of your blog. I am sorry but I just don’t understand your general thesis although the addiction angle seems to indicate that much of it has to do with personal responsibility and relating our financial addiction to drug addiction. It does come across as an existential dialogue and I am not sure of what it means.

There is always more need for personal responsibility and personal awareness but that does not address the root causes of the financial crisis and the credit bubble which have to do with the political and economic changes that led to the financialization of our society.

You can argue all day about whether it is the bank or the consumer that is more responsible for our levels of household debt but in the end the only way to stop it from increasing is to stop the banks from offering it and make them more responsible for losses. Guarantees such as the CMHC fuel reckless and even predatory lending.

This is what happens when (take your pick), (a) the economy starts fading, (b) real estate prices slide or, (c) people realize they were horny idiots. The words will be repeated in most cities, and apply to many buildings and housing developments where buyers understand what looked sexy a year ago is now just butt ugly. Worse, dangerous.

Garth this is true how ever it will get far worse than most people can imagine and the reason is that the people who are needed to keep the real estate ponzi cult going don’t get paid enough to get involved in such financial foolishness. Like it or not the canadian real estate cult will have its Wile Coyote sky diving moment and no parachute. Vultching for a few cents on the dollar any one?

72 Victor – this was discussed thouroughly on this blog a couple of years back. At that time, posters were writing that they knew many people who didnt get taxed, but someone came up with the key interpretation bulletin
(there are several that relate) from CRA that laid out the
criteria, one of them being the intention to profit. I think
it might have been blogger squidly77.

I could see this happening more often as the need for tax revenue increases and the trail of flips lengthens, establishing the pattern.

“You can argue all day about whether it is the bank or the consumer that is more responsible for our levels of household debt but in the end the only way to stop it from increasing is to stop the banks from offering it and make them more responsible for losses. Guarantees such as the CMHC fuel reckless and even predatory lending.”
———

Yeah, arguing all day about whodunnit is boring and irrelevant. The big news is that a 28 year old man is watching TV numbly and doesn’t know why he paid 400,000 bucks for his concrete box.

The solution according to the “preaching since 2008 club?”

“Love liquid”.

So you see, the apple fell pretty close to the tree. By saying “love liquid”…the underlying root of the financial system as it stands and the insanity of “head in the sand”, and investing back into the ponzi….isn’t touched.

Don’t you think the real estate situation is serious? I mean if people won’t look into reality now….when will they?

Banks, governments and people. Who are they? What’s the game? Does “love liquid” deal with it?

“Love liquid” as a definitive response is outrageous. How’s that for no bullshit straight up. Bank and financial dynamics are unchallenged. Great..got the predatory lending and get people out of the line of fire. Regulate. But what’s the real deal? Do we have the luxury of “debating” the obvious or not?

# 39 – My plebes out west tell me that Air Canada will be increasing the direct flights from Shanghai to Vancouver in order to soak up all the lingering listings – I expect the georgia to be sold out at new record prices by the end of November.

The government is responsible for today’s levels of household debt. They are responsible because they are taking on the risk of the worst loans, by choice. Banks are only at fault to the point where they lobby for favourable laws. Consumers cannot be blamed either, this should be fairly obvious. (WHY?) People use price levels to determine what choices they will make. If governments manipulate price levels for ‘the greater good’ (more like for ‘the greater fools’) then they are miss-leading the people.

Everyone should have at least a couple bags of junk silver 90% purity to function as money in the case of a natural disaster. If we lose power for a couple weeks, you may find that silver will buy you stuff in the case of an emergency… until the LED’s on that credit card machine can start working again. Your only alternative will be to barter or rely on the government. I don’t know about you guys, but relying fully on government during an emergency is not a position I want to find myself in.

Opps not sure what happened in previous post , sorry this was what i wanted to say regarding this statement by #74 Fancy Pants:
I wish stores could band together and fight back with pricing 10% lower if you pay cash or debit. Fine line between organized crime and lending institutions.

Exactlty, in fact this would do us good. Deal in cash and avoid becoming a cashless society where you can be tracked and controlled.

This is the reason for freezing the $800K investment w/guaranteed citizenship in 5 yrs program.

What does that look like? Take a look at NZ & AUS’s “expression of interest” model. That is where we are headed.

Which means we will have working class people moving into Canada (nurses, tradespeople, etc). Not people looking to buy $1M shacks in Vancouver.

And now of that really matters unless we look at housing starts & rental vacancies. What does immigration matter if we have 1m units available and 365K people moving in? (assuming these are not families and all single households)

“In good speaking, should not the mind of the speaker know the truth of the matter about which he is to speak?” ~ Plato

This why we come here and read Garth’s blog. We feel he has some truth to impart.

“People do enjoy a good blood and guts show don’t they? Be it the tearing of limb from limb in a gladiatorial spectacle at the Colosseum almost two thousand years ago to the eager anticipation of the prospect for the decimation of some homeowners equitable wealth and life savings today; there seems always to be a contingent who impatiently long to delight in watching another suffer somehow.”

Are you for real! Somehow you seem to think that the speculative (and potentially vaporous) gains by some of the lucky idiots are well deserved and we should all lament the lose of such “hard-earned” money. Why should we feel sorry for these people? Because they jumped into the housing market with zero down. Because they had no fear of debt. Because they willingly, and freely, swallowed the real estates cartel’s cool-aid. Because they laughed at the “stupidity” of those that did not participate in this housing free-for-all? Because they succumbed to blind greed?

Listen D.A., the only people that will lose big money in this housing correction (if it comes to pass) are the “Greater Fools” that joined the party late. And it is these kinds of irresponsible people that played a large part in the creation of this insane housing bubble in the first place. They will be punished for their foolhardiness and that’s just the way it goes. Unfortunately, the worst offenders in this mess will have already made-out like bandits.

#99Babblemaster on 11.01.12 at 12:44 pm
Are you for real! Somehow you seem to think that the speculative (and potentially vaporous) gains by some of the lucky idiots are well deserved and we should all lament the lose of such “hard-earned” money. Why should we feel sorry for these people? Because they jumped into the housing market with zero down. Because they had no fear of debt. Because they willingly, and freely, swallowed the real estates cartel’s cool-aid. Because they laughed at the “stupidity” of those that did not participate in this housing free-for-all? Because they succumbed to blind greed?

Listen D.A., the only people that will lose big money in this housing correction (if it comes to pass) are the “Greater Fools” that joined the party late. And it is these kinds of irresponsible people that played a large part in the creation of this insane housing bubble in the first place. They will be punished for their foolhardiness and that’s just the way it goes. Unfortunately, the worst offenders in this mess will have already made-out like bandits.

Just thought your post was worthy of repeat to ensure it brought to the attention those who might have missed it.

I’ll let them judge you for themselves.

#100Spiltbongwater on 11.01.12 at 12:51 pm
Never knew Garth was working for Raymond James. Do they still go door to door like the jehovah witness looking for clients?

You might mean Edward Jones Ltd. I look in bars. — Garth

I don’t know about Garth but I still do even after more than two decades in the business.

I see more and more people I personally know getting more and more in debt. Fancy cars, investment properties… It’s interesting out there to say the least. I had faith things would correct, but I’m not sure when exactly the wall of debt max hits. It seems like people can endlessly spend themselves into debt. Housin is not going down yet. Even mpac assessments didn’t make a difference. I thought they would. 2 million became the new normal in high end homes. These are surreal times we live in. Interest rates will stay low an this craziness will probably continue for a while longer.

#58 Marie….the differance between a mutual fund salesperson and a financial advisor is that one has to have some qualifications and education and works within a regulated environment and the other does not need to have any financial education, has no fundamental background in either business, finance or economics nor is encumbered by any licensing or regulations. I’ll leave you to figure out which one is which.

The financial advisory buisness versus the regulated Canadian Securites and Exchange Act is the clients choice between reading television cartoonfomercials and radio shows where the financial advisors are huckstering on Saturday morning or Barrons where financial professionals toil with the art of finance and every day is Monday morning.

#58 Marie on 11.01.12 at 2:25 am
—————————————
Were you blind during your long-time lurking? That has been known for years on this blog. He is a great guy and will actually take the time to discuss your personal finances with you if you so wish.

>>For the first time since 2010, the economy’s actually shrinking. GDP growth is negative, thanks in large part to housing

And yet it was only a couple of months or so ago that you were telling people that a recession was very unlikely. And it was only a few days ago that you were telling people that the stock market was a good place to put their money.

A recession is still unlikely, and I have never advocated direct equity investing. — Garth

I don’t know how closely you follow these guys, but Genworth MIC just reported. You may recall them as the private “competitors” to CMHC. Essentially they insure the mortgage borrowers that CMHC turns down.

They just reported fablulous earnings yesterday…but…and this is a big but, they disclosed that they have recently onboarded $255 Million worth of foreclosed real estate. I am no accounting expert but this may be a way for MIC to defer reporting losses on foreclosures, and otherwise fudge their numbers. Would be interested in your take on this one.

Also, at $255 Million, I’m thinking that MIC is now the largest single holder of Canadian single family residential real estate in the country. I wonder how they mark this asset for accounting purposes.

So when a relative has their GTA home for sale on one of those ‘no commission, list it yourself’ programs, lists the home in the low $900k because they want to keep commission…say nothing.

They’ve had neighbors attend open house, mostly those who are sniffing the air. No RE Agents with clients. The house sits, and they are so certain it will sell.

Blind to MLS where there are 20 other homes in their immediate area. Most sit $100k less and have more to offer., yet, they remain unsold.

Because the truth is these 3 yr old Builders homes, of 2,500 sqft sit on small lots, no sidewalks in the middle of a farmers field, walking distance to nothing. And a whole massive farmers field being developed right across the street. With more of the same.

Prepare for a crazy spring market. The number of homes listed will be high…. Probably
The beginning of the end will start then. Everyone has high hopes for a strong spring market. I cannot wait until real estate agents are beginning people to
Make offers.

93 Triplenet – Karl Marx did not have anything to do with this analysis. Nor are any of his writings relevant to historical housing prices calculated as a multiple of incomes or rents. Trotting out Marx is a pretty lame effort at dismissing proven historical price multiples (i.e. math, not economic theories), surely you can do better.

For people being prejudiced by “tech talk finance”,
a non-starter for understanding the Canadian real estate bubble, false claims of “conspiracy” theories ( when it’s actually legit info) , an unexamined banking sector, and unsubstantiated suggestions of “solidity” in the financial system, now is a really important time to get on the net and get educated.

Unfortunately there are a lot of flakes out there, and people who like to sell fear instead of promoting knowledge. It’s still not an excuse to move to “head in sand” position as a financial yoga philosophy.

Here’s a good 12 minute link to understand something about gold and bonds. Although true that there are brain dead “gold bugs” who talk about wealth preservation, simplistic pro-banking/casino elements
( often found on this blog) jump all over “gold bugs” with broad brush in hand. That’s unintentional? I choose to think so. It’s mostly “think backwards” behavior.

Anyway….here’s a link. Max can be weird at times, but this info’s pretty strong. A defence against bullshit “goldbug” brush-offs is important, and a good jumping point to look further.

The alternative? Personalities over principles, and letting others think for you. Never a cheap strategy.

Right before the 2008 crash I worked on Homer St in downtown Vancouver. There was (and probably still is) an all-you-can-eat restaurant. A daily bus tour stopped there around lunch time, unloading enough Asian visitors to occupy the entire establishment. They were all real estate tourists. 40-70 years olds visiting for a day to sign papers and see what it is they were buying (in that exact order).

I no longer work in downtown. I’m curious if the bus still makes its rounds.

The banks know things are bad, so they are compensating for the lack of speculative profits by hiking fees.

I bank with RBC. My transaction limit for the account went down to 10/month from 25. Penalty went to $1 per transaction over (few years ago it was $0.1). In retaliation I quit paying with debit and switched over to a no annual fee RBC Visa, paying off the balance in full monthly.

I guess many people did a similar switch, because now the card will cost $39 / year. They quietly discontinued the one I was using and sent a different type of card for renewal, burying changes in the fine print.

A decade ago my banking was free, and balance over $3K paid interest. I changed absolutely nothing. I had the same type of account, the same type of credit card and same everything. The terms and conditions kept changing.

I’m thinking of switching, but as far as I can tell, all banks are mimicking eachother. Vancouver credit unions offering transaction services boast about investing in local businesses and real estate, which to me is just another reason for not touching them with a 10 foot pole.

Why does everyone assume that “local” means “good”? Every distant business is someone else’s local business. Proximity means nothing.

3* income – so I have to live in a million dollar home!
I don’t want to. Will I be penalized by the general rule makers?
What is the correct multiple to use when we buy a car. Is there a published table of factors and multiples.
Karl Marx – my mistake. I meant Lenin.

I am a bit pissed of today. I am actually making money, investment wise. Surprise, surprise. I am. But I look all around me and see misery. Normally I am very upbeat.

I was there in the 80’s and remember when Olympia and York went down. Thought that was bad (minor). This is awesomely nastier.

It is okay to analyze the situation when you are safe. Even having to think about being safe has never really entered the equation. But the untold and told cries of downsizing, no sizing, distresses me.

Not an exceptionally great day. Might have to start packing. And I don’t mean moving house. I knew this was going to happen, but didn’t envision the pain it would apply.

The meltdown continues. Condos resales for over $400,000 condos fell 40% in Toronto. Assuming 5% realtor commission and financed 93% the Ontario government will be out $1,600 in HST on the commission and $818 in CMHC and $4,475 in LTT for at least $6,893 in revenue per missing sale y/y. So will there be a fall economic statement from Ontario? This is, Garth, I guess why you warned Ontario Teachers coming to your blog to watch out…

*If majority of the boomers has paid off their mortgage, can’t they just live with the pension they get + welfare + subsidized property taxes and not sell their home?*

You are assuming they have a pension, that they qualify for welfare (for some both welfare and the pension will be the same thing), that they will enjoy a good enough health to keep working until ‘welfare’ can cover their expenses, that their property taxes will be subsidized, and they won’t have a mortgage equal to the value of the house (especially if house prices fall).

Pensions are increasingly under attack, it is reasonable to assume ones health might suffer as one ages, and the things the State wants to do for its seniors the State may not be able to afford for its seniors as except for CPP most State schemes are your contributions are immediately used by someone else. In other words, I contribute and records of my contributions are faithfully kept, but the little old lady across the street gets those contributions. But I am told not to worry as there will be enough youngsters around paying into the schemes so I will get my share when I am old and grey.

You must forgive me if I am sceptical and would like to get me a nest egg of my own so I won’t have to worry about State schemes, eh.

Wow, creative destruction, order out of chaos, controlled demolition, Allen Greenspan would be proud of this title since he coined the phrase. Spoken like a true globalist or low level wanna be . What happens when governments are confronted with the prospects of deflation And have the ability to print endless paper money. They ALWAYS choose to print and devalue that currency to get out from behind their endless fractional banking system. Without that system they lose all their control so that system must be protected at all cost. And that cost will be the middle class and retiree . But when you have sociopaths running the system, there is never any thought of collateral damage, only maintaining control.

====================
You are correct, but also note the people who are currently pumping RE probably knows or has known for quite some time the game is over.

For those who have been in front of the eight ball, have probably sold and are on hold. Look at the Financial Analyst (from one of the banks ) who publically said she expects growth of up to 12%, but on the flip side she sold hear property/ies.

A few weeks later she come out and said we may be in a bubble WTF. As time goes on and the people who are in the business gets out, they will be cheering on the sidelines of an collapse. Why, because they want to get in at bottom basement prices, Not the current Sky High Penthouse prices.

Wait and see and in April Global will be toughtin a brand new tune over and over again, “Collapse, Bubble, Bubble Collapse unemployment Failure, bankruptcy foreclosure.

Condominium sales in Canada’s biggest city plunged 30 per cent in the third quarter from the second, leading developers to delay launching projects, Urbanation Inc. said today.

Sales of new condos fell to 3,317 in the latest quarter, the research firm said. In the first nine months of the year, sales slipped to 14,156, and are on track to close out the year with a 35-per-cent decline from last year’s record level of 28,190.

“With slowing sales and a record level of unsold inventory in the market in the second quarter, condominium developers reacted quickly by delaying their project launches, especially in the ‘416’ area,” said executive vice-president Ben Myers, referring to one of the area codes used in the Toronto area, the other being further from the city core.

“Just five projects launched in Toronto in Q3-2012, as developers choose to review their pricing assumptions and unit mix.”

Resales also sank in the third quarter, by 32 per cent to 3,413 from 5,050 in the second quarter.

A recession is almost inevitable, given that the Canadian economy is so heavily dependent on commodities, which are falling off the cliff as the Chinese economy heads into its (inevitable, and long-predicted) hard landing. The EU is sinking further into the mud and the US will, at some stage, become bankrupt and default on its bonds.

As I explained before, the period from 2009 to 2012 was not a ‘recovery’ but a desperate (and now failed) attempt by central banks to re-inflate the asset bubble which burst in 2008.

Perhaps you could try to back up your assertions with facts and analysis in the way that I have done.

>>I have never advocated direct equity investing

Nor did I suggest that you did. Here’s what you wrote:

“If you invest $10,000 in assets with a long-term return of 7% (what equities have given), and add in the annual TFSA contribution limit of five thousand, in 20 years you’ll have $243,674.”

In Japan the stock market has tanked by about 80% since the start of that country’s two decade long deflationary depression. Unlike Japan, Canada has little real manufacturing and is mainly a primary producer like Brazil or Chile, heavily dependent on world commodity prices. An 80% drop in the TSX over the next few years is entirely plausible.

#119 JuliaS on 11.01.12 at 2:53 pm wrote:A decade ago my banking was free, and balance over $3K paid interest. I changed absolutely nothing. I had the same type of account, the same type of credit card and same everything. The terms and conditions kept changing.

I’m thinking of switching, but as far as I can tell, all banks are mimicking each other. Vancouver credit unions offering transaction services boast about investing in local businesses and real estate, which to me is just another reason for not touching them with a 10 foot pole.

If you don’t mind using an “internet Only” bank, you could try The Orange Guy’s shorts. He offers a no-fee 0.25% interest chequing account. Check out the THRiVE account

=================
michael hudsons said:
..”major tactic being to shape how voters perceive the problem. The trick is to make them think that cutting taxes will lower their living costs and make housing cheaper, rather than enabling banks to take what the tax collector used to take. That is the key perception that needs to be spread: cutting taxes leaves more “free lunch” income available for banks to lend against, loading the economy deeper into debt.

…”Evan Solomon then asked an MP panel of Cathy McLeod, Hoang Mai, and Scott Brison about the issue, where Mai said that there is a motion at the finance committee to study this problem. McLeod said that the government is taking action, and has identified $4.6 billion sheltered in Lichtenstein, and has recovered $17 million in unpaid taxes and penalties from those 106 people identified. She said that they are realigning their auditors to work with prosecutors and the RCMP. Brison said that in 2005, the Liberal government increased CRA’s budget by $30 million to go after tax havens and recouped $2.5 billion.”

michael hudsons said:
The problem is that the financial system itself is rotten. This has turned today’s class war into a financial war, with the major tactic being to shape how voters perceive the problem. The trick is to make them think that cutting taxes will lower their living costs and make housing cheaper, rather than enabling banks to take what the tax collector used to take. That is the key perception that needs to be spread: cutting taxes leaves more “free lunch” income available for banks to lend against, loading the economy deeper into debt.

Evan Solomon spoke to economist and tax haven expert James Henry about the problem of tax havens for wealthy Canadians, and the fact that some estimates say that up to $80 billion in tax revenue is being lost. Henry said that there is a long history of Canada being involved with tax havens – Newfoundland once having been considered one – and that up to $32 trillion around the world could be hidden in tax havens. Henry said that the problem needs serious investigation, and that it was a question of how much audit resources were being donated to these investigations.

Solomon then asked an MP panel of Cathy McLeod, Hoang Mai, and Scott Brison about the issue, where Mai said that there is a motion at the finance committee to study this problem. McLeod said that the government is taking action, and has identified $4.6 billion sheltered in Lichtenstein, and has recovered $17 million in unpaid taxes and penalties from those 106 people identified. She said that they are realigning their auditors to work with prosecutors and the RCMP. Brison said that in 2005, the Liberal government increased CRA’s budget by $30 million to go after tax havens and recouped $2.5 billion.”

JuliaS,
I’m with RBC as well, and I don’t pay fees. As long as you have a bank account, a credit card (mine is the gold card Visa that doesn’t charge a fee, but I generally never use it as I like my PC mastercard for the 1% on groceries), and $100 in a “high-interest” TFSA (that counts as an investment), then you will get a multi-product rebate, where the $4 monthly fee is automatically rebated. I don’t know how many debit charges are included per month, as I generally don’t go over 2.

If watching and waiting on the sidelines while greedy consumers realize they’ve been led up the ramp and into the slaughterhouse by bankers, mortgage brokers and shelter salespeople makes me a bastard, then yup, I must be a big, fat bastard. Guilty as charged.

What if ‘liquidity’ and all other assets are just fart bubbles within a great big farty gaseous cloud? There have been several central governemts demanding their physical gold back from the deep vaults of the banksters….now why would that be?

Did you happen to read George Ures ‘Urban Survival’ today about the phony numbers coming out? really pathetic attempt by you know who to shore up political support ahead of a tight election.

What abot Canada’s hidden ‘subprime’ explosion in the auto loan universe? Ever stop to think that ‘being richer than you think’ has spwned a covetous wave of gluttony that can’t be repaid?

The banks have been extremely loose on auto cresit quality while car co’s at the same time have been driving the price of vehicles into the stratospher because of zero intrest rate driven lease pmts. Lower credit quality and higher purchase prices based on artificial real estate weath indulgences is another reason to start drinking…..heavily.

Look at this propaganda article in thestar. Realtors , builders are in an all out panic and once you read the article you will laugh at the weak propaganda of lies. There are Thousands and thousands of empty condo’s that are unable to sell or rent. It’s going to be a NASYT CRASH builders a NASTY crash!

LOL…You can not even make up such a stupid article…LOL the industry is in a TOTAL PANIC.
———————————————————-

Toronto renters have become unwitting victims of the condo boom.

There may be a record number of new condo projects on the books, but rental demand is so high and projects are taking so long to build, the number of new investor-owned rental units ready for occupancy isn’t enough to fill the gap, according to condo market research firm Urbanation.

New condo sales were down 30 per cent in third quarter over the second as developers held back launching new projects while they took a second look at pricing and units sizes in the face of softening demand.

But demand for investor-owned rental condos remains unrelenting as more people look to live and work downtown, and the shortage is unlikely to ease up soon, despite the fact a record 28,000 pre-construction condos were sold last year, says Ben Myers, executive vice president of Urbanation.

It could take about four years before those preconstruction units sold last year translate into real places to live as condo build times get longer.

Projects that took just 2.68 years from start of sales to occupancy a decade ago are now taking close to four. And while some 16,000 to 18,000 new units were expected to come on stream by the end of this year, just 13,000 are likely to be completed, says Myers.

That means while there’s lots of digging going on — and endless talk about a condo bubble — too few condos are actually being completed to keep up with rental demand.

Developers cite a host of factors, from smaller build sites requiring more complex design and deeper digging to taller projects requiring more intricate design. Even the reworking of plans has been a factor as projects got the green light for extra floors after sales had already started.

The demand/supply imbalance is playing out in bidding wars for rental condos and prescreening for units that’s almost as rigourous as buying a home.

“I’d never heard of ‘bidding’ for an apartment,” says University of Toronto student David Wallace who spent six weeks looking for a place to rent before starting medical school. “The speed at which things went, I had no idea. They’d be (advertised) one day and gone the next.”

“I get clients asking me all the time, how could we have all these new condos and I can’t find a place to rent? But we have a lot of people coming to the city, we have a shortage of places to rent. I tell them, have all your paperwork ready and be prepared to offer more than they are asking for rent.”

Some developers, like Empire Communities, are now looking to rent out their inventory of new condos that have been slow to sell since buyers started edging to the sidelines last spring.

“No one wants to hold on to real estate, but this is a natural because the rental market is so crazy,” says long-time condo developer Paul Golini, executive vice president of Empire.

“Sales have become slow because people who would typically buy are now waiting to see what happens to the market, hoping to get a deal. They are paying the same amount (for rental condos) as they would for a mortgage, but they are more comfortable not committing to buying for a year or two.”

The rental situation will be a key topic at a Canada Mortgage and Housing Corp. conference Nov. 14. Just from 2009 to 2011, the rental vacancy rate across the GTA has dropped from 3.5 to 1.4 per cent, says Shaun Hildebrand, CMHC housing analyst for Toronto.

High house prices and tighter lending rules are likely to see more people renting longer in the next few years.

There are roughly 10,000 new renter households per year across the GTA, says Hildebrand. “Increases to the purpose-built rental (apartment) stock are negligible and the number of condo rentals has been increasing by less than 5,000 units per year. So you can see where the gap is,” he adds.

Even if condo completions edge closer to 16,000 units, from the 13,000 expected this year, that’s like to mean at best 6,000 new rental condos, he adds.

It seems blatantly obvious to me that many of the people that will be underwater in this supposedly coming RE correction have no-one to blame but themselves. OK, Flaherty, Carney, Harper, the Banksters, the RE Cartel and MS Media, etc. all certainly helped to blow this massive gasbag. However, no one held a gun to anyone’s head.

It’s too bad that we have to have these kinds of booms and busts and that people get hurt. It’s also too bad that Harper will probably provide a bailout package if things get bad enough.

D.A. why not save your sympathy for those that missed the crazy credit party and that will end-up have to pay for those that got burned (i.e through taxes)?

#60 Canuck Abroad on 11.01.12 at 3:26 am
#33 Coquitlam Resident –
……………………………………………………………….
That whole rental thing is not an internationally accepted metric, nice try on bolting that on to the 3 times median income which is an internationally accepted metric.

#62 Canuck Abroad on 11.01.12 at 3:44 am
when real estate bubbles pop prices tend to fall for 5 – 6 years, so that is about right for the US (approx 2006 – 2012). So if Canadian prices started to correct in 2011, then you should expect prices to bottom out around 2017.
……………………………………………………
How about 21 straight years of property price decline in Japan. A Real Estate bubble like this is epic in nature and I feel confident in making the assertion that Canada and even the US are in for a very long process. On the other hand, you know what the say about assertion, ‘You make an ASS out of ER and SHUN.’ Somehow that doesn’t make the same sense as when I heard it the first time a long time ago…

“Wow, creative destruction, order out of chaos, controlled demolition, Allen Greenspan would be proud of this title since he coined the phrase. Spoken like a true globalist or low level wanna be . What happens when governments are confronted with the prospects of deflation And have the ability to print endless paper money. They ALWAYS choose to print and devalue that currency to get out from behind their endless fractional banking system. Without that system they lose all their control so that system must be protected at all cost. And that cost will be the middle class and retiree . But when you have sociopaths running the system, there is never any thought of collateral damage, only maintaining control.”

Works great for me. Local FI fell all over themselves
getting just some of my business. Can phone Board Chair
anytime as well. Get invited to all sorts of meetings. Got
100% financing on used vehicle just cuz they know me.
And when I bitch, they actually cringe a little.

152 Mr B – I understand it has deflated in the local currency, but not in others.

GTA girl.. Hilarious post about the permanent tooth mark in your tongue. This is how I feel about oakville. Everyone oohing and aahing about Joshua creek when undeveloped farm land is just about to be sold right beside it. I have a permanent tooth mark in my tongue also. Happy the oakvilles got their mpac assessments today. Properties assessed over one million easily. The same properties will be built just beside it at 750k likely. If those mpac assessments don’t motivate highly leveraged people to leave… I don’t know what will.

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The views expressed are those of the author, Garth Turner, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.